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Article from Issue 220/2019

Noncompete agreements have been around for years, but they seem to be experiencing a surge in popularity. Employers love noncompete agreements because they reduce the power of the employee to bargain for higher wages. Interestingly, noncompete clauses should really be anathema to both so-called conservatives (because they interfere with competition) and so-called liberals (because they diminish the rights of workers), but they seem to have taken hold throughout the developed world, and most governments appear unwilling to confront the problem in a comprehensive way.

Dear Reader,

Noncompete agreements have been around for years, but they seem to be experiencing a surge in popularity. Employers love noncompete agreements because they reduce the power of the employee to bargain for higher wages. Interestingly, noncompete clauses should really be anathema to both so-called conservatives (because they interfere with competition) and so-called liberals (because they diminish the rights of workers), but they seem to have taken hold throughout the developed world, and most governments appear unwilling to confront the problem in a comprehensive way.

To be fair, noncompete agreements do have a purpose in this world. A company might make a huge investment in finding an upper-management exec, who is well compensated for any contract restrictions and whose departure could truly make chaos for corporate strategy. Sales staff sometimes have access to customer lists and other valuable information that the company has an interest in protecting from competitors. But the use of noncompete agreements has spread well beyond these special cases. A recent article in Bloomberg [1] quotes a 2014 study [2] that found nearly one in five workers in the US were bound by noncompete agreements, including in jobs such as camp counselors, night watchmen, and other gigs where the clause serves no constructive purpose other than to take power away.

Anyone can put a noncompete clause in a contract, but the enforcement of the clause depends on the jurisdiction. The different countries of the EU all have slightly different rules. In the US, different states have different statutes and common law provisions that define the enforceability of noncompete agreements. Most states have a general tolerance for noncompete agreements, although California, high-tech mecca of the USA, takes a hard line in prohibiting noncompetes, and a few other states have acted recently to limit the power of noncompete agreements, especially for hourly workers.

If you're on a career path in the IT industry, you might find it difficult to avoid noncompete agreements (unless you move to California). But if you're facing a contract negotiation, it is important to come armed with information, because information is power.

The first thing to know is that the noncompete clause in your contract might not be enforceable in your jurisdiction. (Check into this – don't take my word for it!) It is also a good idea to stop and consider who you are bargaining with. A big company like IBM or Oracle probably has a standard contract, hammered out by a team of lawyers and tailored precisely to the company's needs, and it will be difficult to get them to make a lot of changes just for little ol' you (although you could always try). A smaller company, however, might be using a boilerplate contract, with a few customizations by a local attorney, and they might be more flexible about changing the terms.

Some employers might balk at striking out the noncompete clause completely, but you might be able to talk them into reducing the duration or scope. For instance, if a clause tells me I can't go work for another magazine, I might be able to negotiate a refinement that specifies I won't work for another Linux magazine, and the employer might decide that their interests are adequately protected.

And of course, as any good negotiator will tell you, anything you give up should be worth something. If you're going to surrender the possibility of future professional mobility, you should let your future employer know that you know you are giving something up, which should be reflected somehow in the compensation.

This sounds like ivory tower stuff – easy for me to say and maybe not so easy to get an employer to accept. The important thing is, the non-complete clause is something to pay attention to – it's not one of those obscure trailing paragraphs stuck in at the end of a contract for no foreseeable purpose. It could have big implications on your future employment, so tune in before you sign.

Joe Casad, Editor in Chief

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